The Green Investment Bank - Environmental Audit Committee Contents

Examination of Witnesses (Question Numbers 58-105)

Bob Wigley and James Cameron

24 November 2010

Q59   Chair: Well, gentlemen, I thank you both and thank you for your patience for our delayed start this afternoon. It's always a pleasure to have you before the Committee, James, and we very much welcome Bob Wigley as well in terms of the report that you've done. We understand that you've got to leave at 4 pm, I think, Mr Wigley?

Bob Wigley: Sorry?

  Chair: I understand you've got to leave at 4 pm, so we've got one eye on that.

Bob Wigley: That's okay.

  Chair: And it may be that we do have interruptions through voting in the House this afternoon. So, having got through those preliminaries, can I go straight into the inquiry that we're holding? One of the things that I think came out in evidence that you've given to us and public pronouncements that you've had is that you thought it was really important that the bank should become operational as quickly as possible. I just wonder what you think of the timetable now that we've got it, and what risks you think may or may not be associated with that in terms of actually the timescale in which the bank will become operational?

Bob Wigley: Who are you addressing the question to?

  Chair: Addressed to you, please, yes.

Bob Wigley: To me. Well, I think that setting up a Green Investment Bank of the far­reaching nature that we've recommended in our report and the complexity that that will entail was inevitably going to take time. We set a deliberately challenging timetable to provoke action. It is clear that there is both at high ministerial level and among officials a very high degree of focus on getting to a substantive result. From a personal perspective, I think if it means it takes a few extra months but we get something that has a substantive mandate, that has significant resources and that gives the Green Investment Bank a good chance of achieving that mandate, then those extra few months will be worth spending the time on.

Q60   Chair: Thank you. Do you want to add to that, Mr Cameron?

James Cameron: I would. What I'd like to caution against is running an internal process within the civil service to create the ideal institution in two or three years' time. That's definitely not what we're advocating and I am concerned that—because it takes a while to form a view of what the problem is and then time to organise a response to that problem, and then time to construct an institution designed specifically to solve that problem—if you spend too long waiting to get it all exactly right at day one, you're often too late to really intervene decisively to resolve the problem that you started with. So, I'm all for trying to complete a task so that what you're finished with is fit for the purpose, but delay is not helpful and the more time we spend discussing what could be, the less time we're spending channelling capital into the solution. And, in fact, there is a chilling effect on investment flow as people wait in expectation of something coming through called the Green Investment Bank. So, that's the balance to be struck.

Q61   Chair: Given that we now know what the Government's timetable is and it's in front of us, how do you feel that this rule of unintended consequences might apply? Do you think the Government has the timing right? Do you think that investors might be scared off, or do you think that it's just perfect timing? Could it have been done more quickly?

James Cameron: Well, we have such clear political authority for this institution. It really is startling how solid the support is at the very top of the Government. So, there can't be any doubting about the intentions of the political leaders that we have. We've expressed a need for this institution to deal with a current and pressing problem, and we know we have to deploy capital at scale relatively quickly in order to turn down the profile of the emissions for this country over the longer term. So, urgency, political decision-making has made the need clear, so we really have to galvanise action.

Now, having said that, it's not easy to make a really first-class institution exist. And I quite like the reference point of the budget; it's relatively near term and I'm supportive of that. But I sometimes sense that there might be some longstanding historic internal battles that will have to be fully resolved before we are ready. Well, I think the conditions are ready to create this institution as soon as practically possible.

Q62   Caroline Lucas: I'm just interested to know if it's possible to put any kind of amount on this chilling effect. If it's not here for another two years and we don't get the bank until 2012, is it possible to quantify that chilling effect or is it just a sense that you get from your knowledge of the state of the market?

James Cameron: I'm not sure I could quantify it, but it is a sense I get from the state of the market. I sense also that there's an opportunity in the near term for the Green Investment Bank to display its credentials, to show what it's there for, to help convene the necessary interest, to put together the investment packages and to align the interests of public policymakers and institutional investors of the various types we need—the equity providers as well as the debt providers. We've got the conditions now that could display what the Green Investment Bank is for.

Q63   Zac Goldsmith: If the bank isn't operational until September 2012, when does that mean the first investments are likely to be made by the bank?

James Cameron: Well, I don't know whether you've got a view on this and how long it takes to go between—just to say that we are stuck, if that's the right word, with that timetable. We have to be absolutely ready at that point. We need a slate of investments ready. We need a mandate sorted out.

Q64   Zac Goldsmith: Do you think that's possible?

James Cameron: Well, it's certainly possible. It's certainly possible. I personally would feel the need to make those investments much sooner than that, and see the sense in beginning even if the institution needs to evolve over time. I think we can set a very clear long­term vision for the organisation, a mandate that's in the public interest that maintains capital flow over decades, not months. All of that I think you can set in motion really very quickly.

Bob Wigley: If we go back to the previous question, I was just trying to see how helpful we could be to answer your question. The report does identify that in 2009, net new investment in clean technology in the UK was about $12 billion. So, we are certainly not saying that the effect of a delay is to risk the whole $12 billion, but clearly that at least gives you some scope around the potential for the chilling effect, if I can put it that way. Because investors will naturally say, "Well, if a GIB is coming, since we don't know what degree of subsidy it might involve, we'd better wait because otherwise we might invest now and there might have been better terms available later, so we'll wait". That's the risk.

James Cameron: Nicely put.

Q65   Zac Goldsmith: I wanted to ask that since the publication of the report, can you tell us a little bit about the dialogue you've had since then with Ministers and officials?

Bob Wigley: Well, from a personal point of view, mine has been periodic. I've been consulted by representatives of BIS, DECC and HMT at different points. Those consultations are ongoing, and I think it would not be helpful to get into the detail of specific individual private conversations. But there have certainly been periodic consultations on different issues from those three departments.

Q66   Zac Goldsmith: Just to probe, are there any areas particularly where there's been a disagreement between recommendations in the report and the position of the Government? Anything that really stands out?

Bob Wigley: Well, I think what might be helpful is to clear up what is perhaps a misunderstanding, which is that, I think, when you read media reports of what's going on, there is a rather black and white debate portrayed between, for example, a bank and a fund. I think what's happening is an intelligent debate and analysis between a group of people who, as far as I can see, are all committed to creating a substantive Green Investment Bank that has a real impact over time but, on the other hand, safeguarding the savings to the public sector borrowing requirement, public sector net debt, and reduction of the deficit that has just been hard fought for through the Comprehensive Spending Review. And I am certainly of the view that if I were the Chancellor, having just achieved the large and difficult reductions that have been secured—assuming they're delivered—I certainly wouldn't want, without very careful thought, to see a new body be created that put those savings at risk.

So, I think it's important to put the debate that's going on in context. I think everyone at ministerial level involved is basically committed to having a substantive Green Investment Bank or fund or vehicle, whatever you want to call it, that has a real impact over time. Let's not forget, of course, it was the Chancellor who commissioned the Commission; it was his idea in the first place. I don't sense any reduction in commitment on his behalf, for example, to see this project through, but I think it has to be an intelligent debate in the context of making sure that we don't put at risk the fiscal reduction that has been hard fought for.

And maybe another helpful clarification for the Committee would be that in other countries in Europe who, frankly, have a less robust and less transparent Government accounting system, the development banks that exist in most other countries don't appear in the Government accounts. And in this country, because we have a more robust and more transparent system, a development bank's borrowings, for example, would be included in definitions of public sector net debt. So, this is not a trivial issue in the context of the reductions that have just been achieved.

Q67   Zac Goldsmith: Exactly right, which means that there is an unavoidable tension between the requirements of the Chancellor on the one hand and the Green Investment Bank.

Bob Wigley: I think that's a good way of putting it.

  Zac Goldsmith: So, ultimately, therefore, it seems like what you're saying is this is a political decision that's going to have to be taken, not so much a commercial one because there's no avoiding the new transparency rules.

Bob Wigley: I personally don't see it as a personal issue between individual Ministers. I think all the Ministers who I've spoken to remain committed to achieving a substantial "green investment something". I think as a team, having secured these reductions, they don't want to put them at risk. So, there is, as I say, an intelligent debate going on about how you achieve both objectives, and it's not easy.

Q68   Chair: Just to press you a little bit more on this intelligent debate that's going on and, perhaps, to refer you back to the Liaison Committee last week where the Prime Minister appeared in front of the Liaison Committee, and in response to a question that I asked about the Green Investment Bank as to whether or not there might be this sort of tension as to how it was going to be resolved between HMRC, Treasury, DECC and so on, my question to him was whether he would be prepared, if necessary, to intervene to try to get the right outcome in terms of all of this. Do you feel that there is an adequate procedure or mechanism for resolving these various tensions that possibly exist, in terms of getting the right outcome in terms of the current fiscal situation that we're in?

Bob Wigley: I do, yes. I think there is a very active dialogue going on between the senior Ministers who are committed to this project, and they are trying hard between them to find a way of achieving all the somewhat mutually incompatible objectives. That's, in a sense, what government is all about, isn't it? This is a particularly tricky set of issues to square, but they are all working constructively on it.

Q69   Chair: What do you think the time frame is by which they have to have resolved what it's going to look like?

Bob Wigley: I couldn't predict that.

James Cameron: It's really hard. I'll just give you my personal experience from the Business Advisory Group to the Prime Minister, where the Chancellor, Deputy Prime Minister and Business Secretary all sit in those meetings. I have no reason to doubt all their collective and individual commitments to make the Green Investment Bank real. But the follow­on conversations after those meetings in corridors and with officials involve some historic battles between Departments of State that don't get resolved very easily without very clear political guidance and, indeed, negotiating from the very top, and officials feeling as if they are working towards an end that they can rationally explain to themselves and their peers. And that sometimes creates excessive caution and delay and overemphasis on process. That's the sort of thing that can only be cleared up with firm political direction.

But I share Bob's view that there is actually a very sensible deal to be done between these departments of state around the fears, the concerns that Treasury has about exposure to more risk. I think it's really a question of taking the commitment to create this institution in the public interest with a long­term objective while managing a serious current deficit problem. We think a lot of the suggestions we've made in the report don't put excessive pressure on the Treasury's capacity to manage debt and where their skills can be drawn upon, and their knowledge of debt markets, which is exceptional, can be drawn upon.

Q70   Caroline Lucas: It was on this point, but it was just a question about whether or not the development banks offer any kind of precedent for trying to resolve the tension that's talked about in terms of even what's on the balance sheet and what isn't. Because isn't it the case that development banks are treated slightly differently?

Bob Wigley: Unfortunately not. Elsewhere in Europe, the development banks do not appear by and large on their Governments' balance sheets in spite of the fact that they're 100%, in general, Government owned and controlled. Because, as I said earlier, we have a more robust and more transparent public accounting approach in this country, a similar development bank, for example, to the CDC in France would appear on the Government balance sheet. So, let's put some numbers around it. Supposing you'd just achieved a reduction in public sector net debt of £80 billion over a period, are you going to want to see a Green Investment Bank be established that in a few years could reduce that reduction by £20 billion? That's a tricky issue, so there is the conundrum.

Q71   Caroline Lucas: Can I just put a little footnote and just say, explain what it is? It doesn't feel like such a good conundrum.

James Cameron: I know. There are all sorts of things that are hard to explain, such as why it's long-term and why feed-in tariffs appear on the Government balance sheet when the Government do not pay a penny for them. There are all sorts of strange aspects of Government balance sheets that are hard to comprehend. But the markets are also quite good at making distinctions—fine distinctions—between an institution that's, if you like, wholly owned by the state and one that is supported by the state. That's reflected in ratings of bond instruments and in the way in which capital can be drawn down. We make contributions to development institutions that aren't drawn down. Very small amounts of capital are actually used but large amounts are pledged. So, in this space, I think there is plenty of room for us to come to a good, solid understanding with those who have duties to look after the public balance sheet—and I know, very serious duties—to find a way of making this happen and for the answer not to be "No".

  Chair: I think just for the purposes of our report, I'm not sure how much we've got on the record about this point that you're making about what is on and is not on the balance sheet. Given that that is so important to the debate about the shape, if you've got any further comments that you could let us have in writing, I think we would find that helpful.

Q72   Neil Carmichael: Basically, how would you describe the ideal relationship that the bank should have with the Treasury? Because clearly that's pivotal to this discussion.

Bob Wigley: That's a complicated question and you have to look at the various activities that the bank would be undertaking. On the one hand you have the provision of risk mitigation mechanisms. That's a big theme of our report. We downplayed the idea of subsidy and up-played the idea of risk mitigation because we think that's the best way to facilitate private sector investment, which isn't occurring today. Now, clearly, if the Government are going to provide an insurance product against, for example, construction risk or bad weather in the North sea, then it is going to want to retain control over the decision about whether to provide that insurance and on what terms, because these instruments could give rise to liabilities that could come back on to the Government balance sheet. So, there are some things that the Treasury will want to retain strong control over.

There are other activities, for example the issuing of green ISAs, which could be done by a joint venture between the Green Investment Bank and a retail fund manager, which the Treasury probably needs very little control or, indeed, possibly even involvement in. So, I think the structure has to accommodate both the ability of the Treasury to directly control some decisions and probably have no involvement in others. I'm sorry that's a rather complicated answer to your question, but the Green Investment Bank by its nature is a complicated beast.

James Cameron: But it's a very good way of explaining the kind of trade-offs that will be necessary to make this real, and that we shouldn't get too hung up on a single bricks and mortar type institution. There are critical relationships here that are necessary to make the idea of the Green Investment Bank flourish. One of those is with Treasury. The Debt Management Office of the Treasury is going to be highly engaged in the provision of debt instruments into the space that we hope the Green Investment Bank will help to create. But others, bondholders of various types, will provide money into the projects, into the plans that we have for offshore wind or energy efficiency or smart grid, which are the three that we chose to highlight. Clearly, lots of other people's money are going to be engaged.

So, maybe another way to think about this is that the Treasury will have to be, in part, an owner of this idea, but the idea will be bigger than the Treasury and will have a long-term vision safeguarded by a board, preferably as independent as is possible to create, given the connection it will have to have with Government, and Treasury no doubt will feature on that as well. The senior Ministers of Government that have responsibility for this idea, who have all displayed their intention to make it real, will clearly define roles for this institution to interact regularly with the Treasury so that they don't find themselves in some way fighting or as an enemy of the institution that's created.

  Bob Wigley: That would be counterproductive.

Q73   Peter Aldous: If we can just move on, in your report you recommended that the Green Investment Bank should have the powers to identify market failures and then address them. What we see now is that the Government seem to be doing a lot of this groundwork themselves. They've told us that they are still doing work to identify market failures at this current time. Do you think it's right for them to have adopted that approach?

Bob Wigley: Well, in my foreword to the report I did say at the end that I thought there would have to be a period of further—I think I called it—appropriate analysis. In other words, the Government, in a sense, would need to look at our conclusions and assess itself whether they felt these conclusions were right. I think that's kind of what's been going on for the past few months. My sense is that that period of internal analysis is coming very soon to an end, and that you will see in the next few weeks more external consultation on the basis of the internal analysis that has taken place, and I think that will involve very senior officials, particularly from BIS, consulting with market participants. So, there has been a period; I think it's coming to an end, and I think you're going to see more external involvement very shortly.

Q74   Caroline Lucas: Carrying on the issue of the Government's relationship, they have indicated that they will conduct what they call "market testing" on possible interventions by the investment bank. How do you think they should do that if, indeed, they should do that?

Bob Wigley: One of the things I've suggested—obviously, time will tell whether this occurs or not—is that I would pick the three areas we highlighted in the report as the three things you would do. Those things are the three that you have just mentioned—offshore wind, energy efficiency and the smart grid. I would then go and find five or six people who are experts in those areas. So I would find the person who builds offshore wind farms, the person who finances them and the person who insures them, and I'd basically get those people in a room and I would say, "Okay, we want to ramp up the pace of investment dramatically from where it is today. Please help us understand, in detail, the barriers that are stopping us building six rather than two wind farms in the next three years," and get into really quite a high degree of detail. The reason I think that would be useful if you did it in each of these three areas is that you would then, I think, inform the structural debate that's going on. People have the information in our report, but you can only do so much in a limited three­month commission report. What we now need to do is get very specific on the particular projects that we want to pursue and get down to a level of detail, because I think that will feed back to the structural debate and be very helpful. So, that's what I've recommended.

James Cameron: Work back from the real problems and real transactions. Clearly, over time you would expect the institution to reach into other parts of the economy, to be able to offer solutions to cleantech manufacturing or small and medium-sized enterprises that have the scope to grow and export their technologies. There are lots of things that this institution should ultimately be capable of assisting in, but initially we have to display its value through real problems that need to be resolved through this kind of organisation of interests. They exist, so putting the right people around the table and having institutional capacity to find what it is that needs to be resolved now is the right way to test it.

Q75   Caroline Lucas: With those three examples, do you think it's equally useful, if you like, for the bank to be funding both the big infrastructure ones like the offshore wind and the smart grid? Presumably, energy efficiency is something slightly different, isn't it? Would you envisage it would have a role to, for example, fund the rolling out of an area­based, street-by-street energy efficiency programme? Could it get down to that level of detail?

James Cameron: Well, yes. When we discuss energy efficiency, clearly there are several ways to express the need to dramatically improve the efficiency of the nation's use of whatever fuel inputs we depend upon. That can be broken up into industrial efficiency, residential and office buildings, and lots of work has been done to show how effective it is to control emissions in the use of buildings. But we did have in mind major urban retrofitting projects. Birmingham was an example, where we knew we had good political support for such a plan, and a huge public housing portfolio with serious energy efficiency problems that need to be resolved. We thought that if you construct a plan, at scale, that needs scale funding, and that funding hasn't been forthcoming in recent times—there is money around, but it isn't organised in a way that could cover that kind of transformation over a large area—then that is the sort of project that you could see the Green Investment Bank helping to make good with this combination of some of its own money and its capacity to reach into the commercial markets and find the right way to access debt instruments, because that's part of the skill that we want to concentrate in this institution. To do big transformations, you need large amounts of capital and you can only draw upon large amounts of capital from the very large, liquid, global debt markets. It doesn't come with equity; it doesn't come with public finance. So, half the trick here is, how do you access it? What's the contact point? What do they want to see before they will release this money on terms that they understand? That kind of engagement requires expertise and dedication and an understanding of the many different interests that have to be put together. That's the sort of project enterprise that we think the Green Investment Bank should do. So, large­scale energy efficiency would be right in the slot for it.

Q76   Mr Spencer: It was the previous point, really, in that when you're doing that market testing, if you came across a scenario where, for example, it was apparent that anaerobic digestion units weren't being built because there wasn't confidence in the feed­in tariffs, would you say that your role was to go back to other Government Departments and say, "We've found this and you guys need to make this happen"?

James Cameron: Yes, I think that is part of the role of the bank, but only because once it's built its reputation as a trusted and reliable institution, it would know how to work back from investment needs to policy design. We aren't terribly good at connecting public policy making with investment needs. We tend not to understand each other's language and often think—sometimes we even celebrate this—that we can do things without each other when, in fact, this kind of transformation is not possible without a very close association and alignment of interest between public policy making and private finance. So, yes, I think it would be useful to have an institution that was very skilled at deploying capital and, therefore, very skilled at understanding what works and doesn't work and taking that back into the policy making process so we design policy instruments in such a way as to make it more likely that they get implemented. Because, let's face it, a lot of what we're talking about here is simply better implementation of existing policy commitments. The smart grids may be much earlier on in their development, but all three areas we've picked are all areas where Governments have committed to do something and it's not happening, or not happening fast enough, and this is a way of making that connection good.

Bob Wigley: I think the point you raised, Mark, about ultimately what is political and regulatory risk is a key barrier today to investment in projects. History is littered with examples of people investing in projects based on a regulatory regime, only to find 10 or 15 years down the track and maybe two or three Governments later that that regime changes and the economic returns that were promised were, therefore, not achieved. We've seen, recently, Spain unilaterally changing its feed­in tariff and materially, negatively affecting the returns of renewable projects there, with a very loud reaction from the investors as a result.

So, we did explore this in some detail in our report, and Dieter Helm at Oxford university came up with a mechanism—I think that it is clever—which is the idea that the Green Investment Bank could write a contractual put option to the builders of projects, which basically would say, "If you turn up in five years' time with a completed project that meets the following criteria, we, the Green Investment Bank, hereby contract to buy it from you such that you will receive a return on regulated assets of x%", a bit like a utility. What that does is, assuming that the GIB is owned by the Government, it aligns the cost of changing regulation with the person who has the power to change regulation. Therefore, it should be a put option that should never be exercised, because what it would mean is that if the Government decided to change the feed­in tariff, it might suddenly find these contracts, these puts, were exercised against the bank and, therefore, you have a universality of interest. That is the concept.

Q77   Zac Goldsmith: Presumably, then, by that logic if Spain had a Green Investment Bank on the scale that you're talking about for here, it would never have made the decision—

Bob Wigley: They wouldn't have changed the rules, or—

James Cameron: Well, if they're going to change the rules, which clearly sometimes you have to, you have a rational process for that change that fits with the investors' expectations and the model for their returns. So, you can't promise an investor that the rules will never change, because life changes and it's sometimes absolutely necessary. But retroactive change is death to investment, of which we have lots of examples—it really puts people off. So you have to give them plenty of notice and a process they understand, and we think this institution would be helpful in that regard.

Q78   Neil Carmichael: The "Bank Commission Report" makes a fairly strong case for rationalising structures within the Green Investment Bank. Does that not negate the argument that we need something additional rather than just mopping up what we've already got? Is rationalisation fundamentally important to the success of the Green Investment Bank?

Bob Wigley: Let me have a go first, and then James.

James Cameron: You go first.

Bob Wigley: First, I think it is important that the existing plethora of organisations, which has somewhat overlapping objectives, be rationalised over time. Is it fundamental to the creation of a Green Investment Bank? No. I think there are lots of other things the Green Investment Bank is going to do that are, frankly, probably more important. But would it nevertheless be helpful to rationalise what is today a very confused space and put everybody under one roof with one clear set of objectives and a hopefully more effective use of funding? Yes. Does that negate the argument for the incremental? No, definitely not. I think in our report we make it very clear that the level of investment today falls way short of what's necessary to achieve our targets, and we absolutely need something incremental and substantive if we are going to meet our legal commitments.

James Cameron: Yes, I'll just simply endorse all that. I emphasise that this has got to be an expert institution, so there will be expertise in some of these existing bodies that can be drawn upon. But it's not the same as the existing institutions. It's an investment house. It's going to be a specialist in investment, encouraging investment by other investors whose language it will have to speak. It has also got a time frame for implementation, and it will transcend annual spending rounds. So, the culture of the organisation should be expert; it should be able to attract very high quality people; and it will be an institution to represent the British public interest for the long term. It will have status and clout in commercial markets, otherwise the other institutions that we need to work with will not give it sufficient respect. So, all those things argue for something new and distinct from that which we have, making good use of expertise that we have in those institutions, and I think it's beholden on all institutions at this particular time to be very careful with their money. If we can reduce some of the cost in delivering the service to the nation of reducing greenhouse gas emissions, then we should.

Bob Wigley: And substantially improve its returns.

James Cameron: And improve its returns, exactly.

Q79   Neil Carmichael: I completely agree that you need the experts—EIB and EBRD are good examples. The question is whether we have access to enough quality advice and experts.

Bob Wigley: All I can tell you is that even before the report was published, but certainly since it was published, I have had hundreds of CVs from investment professionals, bankers, insurance experts, saying, "This is a fascinating and very important project and we'd love to come and work for it. Please can you read our CV and get back to us ASAP." So I don't think there's going to be any lack of—

  Neil Carmichael: That's very encouraging.

Bob Wigley: I think it very much hits a theme that a lot of people think is very important, and I think it will be able to secure very good talent at a good price.

James Cameron: This is a big point, and I think it's also the case that this institution is going to have to represent the United Kingdom overseas as well. Its work will be in this country but we are going to have to attract inward investment. We're going to have to work with providers of capital from outside these shores. This is an organisation that should—if it's constituted correctly and if it's got a mandate that meets the kind of criteria that we've set out in our report—attract very good people indeed. It will be something that you'll be proud to be associated with.

Q80   Neil Carmichael: I'm glad to hear that, because that's certainly what I think should happen. I've got one more question, which may lead to another. In this report, I've just noticed the sentence concluding with, "The bank will work as part of overall Government policy". Now, of course, that prompts the question whether policy will be consistent.

James Cameron: What page is it on?

  Neil Carmichael: That's on page 9.

James Cameron: Just so I can see the context of it.

  Neil Carmichael: I'm not trying to trip you up. I just think it's a really important point, because clearly, Government policy is going to influence and to some extent determine how things go. We all know large investment projects do require some sort of security in terms of forward planning and that, in these sort of fields, is embedded in public policy as well. So, my question, really, is, how sure are you that the Green Investment Bank will find that sort of public policy that is helpful and consistent?

James Cameron: This is, in part, some of the previous questions: trying to find a way of ensuring that the institution plays its part in improving the quality of public policy making on these vital areas. That might involve improving integration between various departments of state so that you don't have a policy that emerges from one Department—for example, DECC—that gets negated by another Department, for example BIS. They're actually working quite well together at the moment, but you get my point.

Q81   Neil Carmichael: I do, because I've been testing that point in this Committee in earlier sessions.

James Cameron: There are some very complex interactions between regulatory regimes that this engages, between regulating the power market, making sure that the grid system is regulated in a way that encourages newcomers to be able to compete fairly with incumbents. These are all quite complicated integrative issues and, over many years, separate Departments of State have fought territorially for control over them. That isn't going to all be magically resolved by a Green Investment Bank, but I think the Green Investment Bank can help explain what is required. If you want this amount of money—the numbers are huge; they're unprecedented in recent history—if you want this money to flow, you need to construct policy in this sort of way and it needs to have this kind of length, and then you increase the chances that you will deliver your policy commitment in the right timeframe. So, yes, we hope that relationship—

Q82   Neil Carmichael: That's quite a different kind of role for, let's say, another bank, which would not necessarily be expecting to influence Government policy.

James Cameron: This is a public institution with public policy objectives. It is not the same as a high street bank or even a specialist investment manager. The culture of the institution will have to be locked on to this objective. The deployment of capital is in the public interest. It's bringing money from the private sector, but for a purpose that has been set through public policy and through the law­making institution.

  Chair: I'm very conscious that Mr Wigley—oh, you wanted to come in on this?

Bob Wigley: I wanted to answer that question, yes.

  Chair: Can I just check your earliest time of departure?

Bob Wigley: Four o'clock.

  Chair: Right, we are going to have to speed up.

Bob Wigley: So, from a personal point of view, I'm not involved sufficiently to be able to say that I'm confident that that will be the outcome, but I'm hopeful it will be the outcome. Because I think if you think about what's going on at the moment in terms of formulating a policy for Green Deal, in terms of drafting a Bill for a new regulation of the power market through to the creation of the Green Investment Bank, it's all happening in parallel. It's being done by the same people, so you would think you have a reasonable degree of expectation that it's going to be joined up. So, that would be my answer to your question. I can't say I'm confident, but I'm certainly hopeful based on what I'm seeing.

  Neil Carmichael: Yes. Well, let's hope we can be confident. That's my observation.

  Chair: I think one of the roles of this Committee is to see how it can be joined up.

Q83   Caroline Nokes: Thank you. Your report has identified the potential dangers of a funding gap between the early stage in technologies, where R and D funding has finished? How does that conflict with BIS's business plan, where it was focused very much on late stage technologies, and what sort of dangers do you think that that throws up?

James Cameron: Well, ideally this institution would cover a range of investment needs so that it would not merely—that's quite a big "merely"—be about large infrastructure investment of the type that we have discussed most, offshore wind being the paramount example, perhaps, but that it would play its part in facilitating capital flow. I want to stress that word. It may not, in fact, be managing any particular money itself for this purpose, but facilitating capital flow into the areas of the economy where innovation happens. Businesses that have the potential to grow and be financed by the ordinary market in capital that exists could be encouraged to grow again in the public interest, so that we have many technologies, many innovators out there feeling as if Britain is a great place to take those ideas, develop them and make real businesses. Because however grand the infrastructure or design, it's small businesses that have to feed into it, bring their expertise and keep the incumbents on their toes and challenge them to innovate themselves. It's a notoriously difficult place to finance. People lose money making bets that lose. We have a venture capital community here that is good, but it could be bigger and it could be encouraged to be more focused on these vital environmental technologies. So, I do see a role for the institution in that way. I hope that it will have that capacity, but I sense that the bulk of the work is actually going to be done by others outside the institution in specialist funds that could be encouraged, maybe, through fiscal incentives, through the formation of these pools of capital that the Green Investment Bank might promote.

Q84   Zac Goldsmith: Would it be possible to structure the bank in a way that it requires a certain percentage of investment in the very early stage stuff and another percentage perhaps in slightly more long-term projects? Tidal power, for example, is a good one. Otherwise all the pressure from Government will be to invest in the safest possible things where already there may be not enough money, but certainly money available for—

James Cameron: There is that risk and you could put it in a mandate. I still think it's necessary at the early stages of this institution to demonstrate very clearly that the institution works to get things done that you can see, touch and feel. That's what it does.

Bob Wigley: Demonstrate value for money, in other words.

James Cameron: You've really got to demonstrate value for money at the very start, but I do hope the institution retains the capacity and the expertise. And don't forget, that makes it quite a difficult institution to manage, because the kind of people who are really very good at large infrastructure projects and understand the debt market perfectly tend not to be the same people who understand venture capital investment in small companies, where they might have to take an active part in the management after their investment. So, different human beings are involved and managing them both will be a challenge, says he with some experience.

Q85   Caroline Nokes: Without a Green Investment Bank, do you think the early stage technologies could get that funding?

James Cameron: We do have a problem right now. We have some money. We have some good institutions. We have some good experimentation happening at the university level. There are some attractive examples from Imperial and other institutions that have built venture capital organisations alongside them. But rather like the justification for the bank as a whole, for that particular section what we're trying to do is accelerate and to have ways of managing the risk of that acceleration. Individual deals you'll always find, and there are providers of capital and there's good expertise; there are angel investors and early stage investors, we have them. But we're trying to effect a transformation in our economy over a relatively short period of time. We're trying to drive investment. In that context, some help is required. I think a dedicated investment institution rather than a grant­making institution would help.

Q86   Mr Spencer: Moving on, is that all right, Chair?

  Chair: Yes, that's fine.

  Mr Spencer: You said these projects must demonstrate value for money. I'm just trying to work out in my own mind how the Green Investment Bank will sit with the commercial banking sector and private investment. I am concerned about how we can stop the Green Investment Bank crowding out the private sector?

Bob Wigley: Well, I think, two answers to that. First of all, if we look back in three or four years' time and we conclude that there was a small element of crowding out by the Green Investment Bank, that would be a fantastic outcome. I don't mean that as a flippant answer, but today the shortfall in investment is so huge that we would really crack the problem if we got to that point. But secondly, and to perhaps be slightly less flippant, the delivery mechanism that we've designed for the bank and its operating principles is always for the bank, when providing funding to projects of whatever form, to do it in partnership with the private sector. So, for example, if we're making a venture capital investment, we do it alongside a panel of venture capital investors. If we're issuing green ISAs, we do it in a joint vehicle with a fund management company. If we're issuing green bonds we do it through a special purpose vehicle that might have an insurance company as one of its shareholders. So, the process of getting you to delivery should ensure that you're always working in partnership with the private sector and that wherever public sector money is at risk there is more private sector money at risk, so that the public in a sense are behind someone who's got their own money on the line, who has done their own due diligence, who has made their own risk assessment and who has more to lose than the public. Those principles we think are very important for the way the bank operates and should ensure that there's no crowding out. In fact, as we say, it's really all about crowding in.

James Cameron: It is all about crowding in.

Q87   Mr Spencer: So, just without trying to get it down to too specific cases: if you've got a project that is being proposed, which the private sector won't wholly fund, you see a role where you might be able to part fund it just to give some pump-priming, to give it a kick over the line?

Bob Wigley: Exactly.

James Cameron: Yes, and to fund different parts of the risk profile of the investment.

Bob Wigley: And it might not be funding, sorry.

James Cameron: Yes, it might not actually be funding.

Bob Wigley: It might be risk mitigation—an insurance product.

James Cameron: It may be something else that just enables it to happen. One of the things we've really got to be clear about, we really do have a capital flow problem right now. This is one of the reasons why I don't want to be coming back here in two years' time and answering your questions about whether there might be a Green Investment Bank because—

  Chair: We're always very pleased to have you come back to answer questions.

James Cameron: Yes, that would be lovely, of course, but—

  Neil Carmichael: Well, we could talk about the success of it.

James Cameron: The fact is that there's no danger of crowding anything out right now.

  Mr Spencer: No, but you do see—

James Cameron: But I do see the issue and people do complain about some of the development banks, in certain circumstances, crowding out private sector investment. But that tends to be in markets that are really very immature or where the institution, perhaps, has lost connection with its true policy objective. This is all about solving a problem. It's really very focused, and because of that it will always look to somebody else to bring the resources to deal with it. It was never going to be the case that this institution would solve this through money on its own balance sheet. It's about encouraging investment to flow.

Q88   Mr Spencer: You see those loans at a commercial rate, but you're not going to be looking for security over assets? Basically, if the private sector is willing to put cash in as well, you'd see that as enough security for the bank to be able to support it?

James Cameron: Well, it depends very much on what sort of project it is, but as an example, if the Green Investment Bank helps put together—I want to re­emphasise this convening, enabling and organising function—an offshore wind deal to get one of the licensed areas to be fully developed, how would it do that? It would do that by finding a way of accessing the debt capital markets. How would it do that? It would do that by taking away some of the risk that they currently won't finance. They'll look for some other equity provider as well. They're not going to cover the whole of the risk themselves. They might get an insurance business to come in and cover some of that risk in the construction phase. But it could be that the Government's involvement through the Green Investment Bank might stop post construction, once the turbines are up and running and once the revenues from generating power into the grid start to flow. At that point they can syndicate their debt, recover, get returns back into the Green Investment Bank and use it to fund something else, maybe move on to the—

  Chair: I'm very conscious that Mr Wigley needs to leave at 4 pm, and I'm not going to allow you to be late leaving.

Bob Wigley: Thank you.

Q89   Chair: Just before we carry on with our questioning perhaps to Mr Cameron, I just wonder if there was anything that you feel that you've not had a chance to really put on the record. You've got three minutes before 4 pm. Is there anything that's absolutely important that we should take note of in terms of the risks, the opportunities, the determination that you'd like to say to us now before you go?

Bob Wigley: I think one thing I would say is that before I got involved in this project I really knew very little about the whole area of cleantech investing. Luckily, I was supported by some experts in that area, but through the process of chairing the Commission and writing the report I have become quite passionate about the need for a green investment institution of some form. I remain personally committed to supporting the Government with whatever they ultimately decide to do, provided it has a substantive mandate, it has sufficient resources to enable it to achieve that mandate and it has a governance structure that gives it a fair chance of achieving its mandate. That's what I'd like to see.

I guess the second point to make is that it is slightly unfortunate that the press at the moment is portraying a sort of picture of dispute that I think is more an intelligent debate, as I tried to say earlier, by, as I see it, a group of senior Ministers who are all committed to making something like I've just described happen but are wrestling with some difficult, mutually incompatible objectives in the process of trying to get to that end.

  Chair: I think Mr Aldous has one burning question to ask before you leave.

Q90   Peter Aldous: Yes, I'm jumping a little bit ahead in the script but it is a burning question: is it a fund or is it a bank? That appears to be one of the discussions that is going around. I noticed you've referred to "the institution" at some stages.

  Chair: I think we've got one minute for Mr Wigley and then we'll revert to our questioning.

  Peter Aldous: How critical is it that the bank should have powers to raise its own funds?

Bob Wigley: The bank versus fund debate, as I tried to explain in an earlier answer, is in a sense to over­simplify the issue. The institution or institutions that come out of this process need to be able to do a number of things. We've identified them in the report. I suppose there are some advantages to a bank structure, which would include the ability to leverage whatever public investment is made many times over. So, for example, by putting, let's say, £4 billion into a bank through the bar ratio, you get that perhaps to £40 billion of ultimate investment. In a fund it's probably more difficult to lever money in that way, so you probably have a lower level of leverage. On the other hand, one has to go back to the public sector accounting issues that I identified at the beginning, and I—having written myself to the Chancellor in advance of the comprehensive spending review supporting him in making significant cuts in the interests of restoring this country's finances to a more healthy place—would not support doing something which put that at risk. So we need to find a way through this that achieves, as I have said, what are somewhat difficult and competing objectives. But those are the issues.

Chair: Mr Wigley, thank you very much indeed. We will resume solo with Mr Cameron, if that is all right, and I think we can move to Sheryll Murray.

James Cameron: May I just add a small word in answer to that question?

Chair: We will come to that in a moment.

James Cameron: I want to come back to that.

Chair: We will come back to that.

Q91   Sheryll Murray: The Green Investment Bank Commission's report says that £55 billion per year is needed to meet our low carbon targets. Is the Government's £1 billion plus the asset sales really enough leverage to bring in that public investment?

James Cameron: On its own it's not sufficient. You would have to find quite a lot from these asset sales to be able to touch that £55 billion target in your first year of operation, but I think I made clear to you already, I am definitely in the "let's get started" camp of this debate. So I would be very happy to take whatever was there to get started, knowing that I could find leverage through good transactions initially from which you can grow your capital base. So the key elements are: get the political support properly grounded so that it is not merely rhetoric; get the leadership of the new institution sorted out that's capable of growing the institution; and get started with some transactions that exemplify what the Green Investment Bank is for. When you have those things done, and you have some money laid out in investments people can see and understand, it's going to be a lot easier to raise more and build that balance sheet up at the time. If this idea was wholly located in the private sector—and I'm an entrepreneur who has built businesses—you don't wait until you've got everything perfectly aligned, you've got everything nicely built and then you show it to the world. You take your idea and you sell it as hard as you can. From total dedication and passion to deliver it, you grow. That, I think, is what we need as an institution. We should not, for example, spend an extra year or so trying to get just that little bit more on the balance sheet with another asset sale, or to get started while we're failing to fund things that need to be funded now. So, short answer to your question—which isn't that short, is it—the £55 billion isn't going to come from that balance sheet, but we're not going to get towards £55 billion unless we get started. So let's take what we've got and build upon it.

Q92   Sheryll Murray: Can I also ask you, if it does lever in private sector funding for infrastructure products, how can it avoid taking all the risks and leaving the profits to the private sector?

James Cameron: That's a really good point. So the answer is to do some transactions, set standards, show how it can be done and then know when to stop and when to withdraw. That's a skill. I can't give you any more, than it's a question of judgment in the leadership of the organisation. So say you did three back-to-back offshore wind deals, all at scale, and the market has seen, "Oh, that's how you do it, I could take that risk", then you're off. The Green Investment Bank can then move to another area and find something else that's harder to do that the commercial sector hasn't done yet. Don't forget the bulk of the investment community, particularly the large institutional investors, are highly conservative followers; they need to be led somewhere by someone whom they trust. So what this institution should be able to do is show where the money should go. Explain clearly, that done this way, there is an opportunity to make the kind of risk-adjusted returns that you are happy with so you can do it now. It's really a question of knowing when to stop.

Sheryll Murray: Thank you.

Q93   Neil Carmichael: Just linked to the questions I was pursuing before, the Government are introducing quite a lot of things in addition to the Green Investment Bank, such as the Green Deal, which you presumably welcome. What I want to know really is, are there any other sort of policy areas which you think need to be adjusted to help the Green Investment Bank? I'm thinking of one straight away, to be perfectly honest, which is a planning system.

James Cameron: Planning, yes.

Neil Carmichael: Because there you are, you've got a lot of people interested in, let's say, energy technology in one form or another, and we can all list plenty of ideas. The business community already has had enough of the planning system, so what kind of changes would you like to see, and are there any other areas which you think need to be addressed while we think about the Green Investment Bank as well?

James Cameron: I know this is on the Government's agenda anyway—to try and simplify and accelerate planning—and clearly there are vital democratic deal-making processes that need to be honoured and respected, so that people feel that they have a say in what happens in their environment and especially in their local environment. It helps to have a plan and know where you're going. I think in this area, the Green Investment Bank should be in service of good plans for the future development of the nation, which turn on dramatically improving our infrastructure and ensuring that we have a system for delivering energy and power that is in balance so that we don't just talk about how much to generate, but also how much demand we can reduce through efficiency. Do we have an intelligent grid that can, in real time, match the two?

  So I think we have all the bits there at the moment. The planning process is problematic. We have investee companies that have real trouble because of sometimes quite irrational things—requirements to do things in the wrong order and the wrong sequence that frustrate enormously—and that does need looking at. But I don't think the problem is resolved merely by picking one or two failings in the system. It really starts by having a very authoritative plan for the future development of the nation that you then encourage the private sector to deliver in the public interest.

Q94   Neil Carmichael: So are you saying the Department of Energy and Climate Change, for example, should come up with a plan for infrastructure in energy and so forth in a much wider, more detailed way than we have thus far managed?

James Cameron: It is a whole of Government enterprise, yes.

Q95   Chair: But the issue surely is how all that is synchronised with the imperatives of this, and what the mechanism is for that. I think, in a way, we're looking to see how that might all be co-ordinated and integrated.

James Cameron: Yes, I'm with you absolutely with that. It is a question of integration. There is a tendency in the Green Investment Bank debate to load everybody's aspirations for a better everything—better government, better investment—on to this institution that doesn't exist yet, but I do think it would help to have an institution designed as closely as possible in the way that we have recommended. I think it would exert quite helpful pressure on departments to align their interest more effectively in order to get things done. In order to get finance to move to where—

Q96   Neil Carmichael: Sort of a catalyst really, do you see yourself as?

James Cameron: My experience is that you have to develop a dialogue around problem solving, that is more powerful than the one that is about process. So there is a tendency when things get really difficult, to encourage more process because it puts things out. Investors, of course, get impatient with process, not that they should trump particularly democratic process but it's quite a good tension. It should be a good, creative tension and I think an institution that is designed expressly to sit between the interest of the investors and the interests of the nation, the public of the nation, I think will be a healthy thing for many of these areas.

Q97   Neil Carmichael: So it involves an interface between public policy and that money.

James Cameron: Yes.

Q98   Peter Aldous: I will just come back to the question I asked Mr Wigley. Is it a bank or a fund?

James Cameron: There's a very straightforward political answer—it is a bank. We have committed to create a Green Investment Bank. There is symbolism in the choice of words. Bank versus fund, in political terms, provides only one answer—bank. Bob was giving a charmingly accurate answer, which is, in the real world it doesn't matter that much. It matters certainly on the character of the institution once it becomes real, and there are distinctions between what it means to be a bank and what it means to be a fund. Even there, I think it's quite easy to say that bank does more of what we want to do than a fund. It feels like it's a lesson in linguistics but I fully understand the code here and the answer is bank. But equally I know that there is a lot of negotiating and deal making to be done, and what matters is the mandate, the leadership and the problem solving. If, in the end, this institution is not called "green", "investment" or "bank", I don't much mind as long as it really does help to deliver £55 billion a year into the things that we need to transform our economy. So I don't wish to be glib about this, because I know it matters, and we are squarely in the political debate now, but ultimately the institution has to be a very credible institution in the capital markets and it has to be around for decades. I want to see people who work in this institution proudly displaying their name cards with some nice embossed logo on it that says, "I work for something that's here to last and that's in the national interest".

We might finish up calling it something other than bank or fund, but for the time being the answer is bank.

Q99   Sheryll Murray: Can I just come back to ways of raising that £55 billion investment a year. I think you have already confirmed this, but could you just be clear? Green bonds seem to be a new invention. Should the Green Investment Bank contract out the creating and managing of green bonds to another established and financially savvy investment fund, in your opinion?

James Cameron: First, a couple of things on green bonds. Rather like the Green Investment Bank, there are a half a dozen versions of what one might mean. There are lots of ways in which you could describe a bond as a green bond. We have quite a few examples already, but they're all slightly quirky and different. Some have been issued by the World Bank; some have been issued by the IFC; some have been issued by a Swedish bank; and there is a Japanese version. They are all slightly different. In fact, what Bob and I were guiding you towards is to think that at some stage, we have to create an investment product that looks awfully like every other bond that's out there in order to get access to the really big money. They need something that they understand, that's not too quirky and different, and that's really quite plain. So, it involves finding a way of taking away the risk, so that at a certain point you have something that you can sell into the huge global market. That's the skill that we've all got to learn, and where the money really is. There's really no other part of the financial ecosystem that has sufficient resources to deliver those amounts. The whole game is finding a way there. So—

Sheryll Murray: Can I—

James Cameron: Can I finish off the second part of your question?

Sheryll Murray: Yes.

James Cameron: So, getting your way there might involve more than one route. If the bank is well capitalised, has a good relationship with Treasury—which after all is responsible for very active management of the Government's debt and knows a lot about the bond market—there's every possibility you could work with Treasury to issue a bond that is green because of its purposes. The capital markets would like it, and they would take it up and buy it in large amounts. That would suffice for me. But you could easily work out another route where you work with the EIB or you work with another issuer of bonds that would be quite happy to use that money on your projects.

  You might also encourage corporate bonds to be issued. So if you had one of the consortia for offshore wind form itself into a corporate entity, it might be able to raise bonds on its own account, because it would be working close by in government. Some of the risk would be absorbed by the Green Investment Bank, and the markets could get comfortable with the risk associated with that corporate issuance. So there's already three ways in which a bond could be the issued for the purposes that we care about, each of which could be called green, but they involve slightly different routes.

Q100   Sheryll Murray: Can I ask you about the other end now? How important are green ISAs and do you think they're symbolic, or a symbolic way of getting ordinary people on board to buy into the Green Investment Bank?

James Cameron: I really do.

Sheryll Murray: Would they have a particular financial benefit for the Green Investment Bank?

James Cameron: I think this is vitally important. It's often not emphasised by the big financiers, but I think politically and in the national interest, we have to try very hard to get this right. So this is how the argument goes: our savings levels are too low; we've been a nation of debtors for a long time; we have to build up our savings. We need to make those savings work for returns in our economy. We need to make them work in our economy on real assets—real things that you can touch, feel and go to see, not whizzy, clever financial products that people don't understand. Such savings have to produce measurable returns. They need to produce dividends—yields that allow people to plan for their future and feel comfortable. They may be quite modest yields; they may not be racy 30% returns—it certainly won't be that—but they are just that bit more dependable, and people can understand that their money, that they saved, built something in their community that they use. I think that's politically powerful and that it will restore confidence and faith in what investment is really for.

  The other thing I like about the ISA idea and why I think it could be, over time, not right away, connected to the bond idea, is that in times of crisis—this is a crisis; it's a very prolonged one and it's not like wartime—we have managed to galvanise the public to raise money very quickly in the national interest, which is what war bonds did. War bonds were taken up in their thousands in relatively small amounts. I think that you could create the conditions in which the public could invest in bonds for these infrastructure projects and provide new capital—not in vast amounts—that currently does not come into these markets. Because the institution that we are hopefully going to create is precisely designed to manage risk on behalf of the Government, it will be doing so on behalf of the public as well. I like that connection. I think it's politically viable and attractive, introducing higher levels of savings and money applied to problem solving in our own country.

Q101   Chair: And in respect to the discussions you've had with Government, do you feel that there's sufficient recognition given to that particular strand of thought?

James Cameron: I'm not sure whether I know; I think so. It seems to have been well received, and I haven't heard too many negative things. But what tends to happen, and it may be inevitable, is that we are drawn towards the big projects. It is rather like the question you asked earlier about early stage investment and small businesses that need capital; there is a tendency to go towards big projects and, in part, Bob and I have been recommending that we do that because there is a need there and one can establish success quite quickly by focusing on a few big things. On the notion of gradually improving the savings of the nation and applying them to investments that deliver emission reductions, a green agenda or something that you can communicate—don't forget, you would take advice from those who would market these products how best to connect with the public at large—it may not be climate change on the top that does that, but if the net result means more money goes into investments that improve the state of the environment here and globally, then that's a big achievement.

Q102   Mr Spencer: Just an example of that would be that if we could convince more people to insulate their loft space, it would reduce the amount of energy needed. That's very small scale, though, isn't it, and individual?

James Cameron: Of course. It's only small scale until it's scaled up, isn't it? The green deal is an attempt to do that. But I know, from my own experience in our own business, that the capital that we can deploy into that marketplace is in businesses that are already of a certain size. So we would make an allocation from our private equity fund of maybe €8 million to €20 million for a company that would deliver that service. What you want also is to be able to have a pool of capital to draw on to make more investments of that type, but also those at a lower rate. Also you want to invest in businesses that are quite risky at quite an early stage. At the other end, you want to invest in the large energy efficiency project. That requires many actors to deliver, which might come more in the form of bond.

Mr Spencer: That is the role of a—sorry.

Chair: I think Sheryll was just going to come in on that point.

Q103   Sheryll Murray: Yes, I was just keen to hear that because I visited Denmark a few years ago now, and a community near Aarhus wanted to build a new harbour wall. What they did was they borrowed the money to put three wind turbines on the new harbour wall. They retained one themselves to repay the loan, and they sold the other two to repay the money for the wall. It is a really good example of how involving ordinary people can work.

Mr Spencer: That's a good example of what a bank would do, but in the sense of people's lofts it's almost a fund activity because there is no convincing Mrs Jones to repay the money that has been invested in her loft.

James Cameron: True, and the investment that I was thinking of when answering your question was an investment from a fund that we have in a company that will deliver that service. But, and I am trying to emphasise this, if you write that individual transaction much more largely, so that you are talking about Birmingham, then you could issue a bond which had a fixed-income return that a saver could invest in and get a tax benefit from the Government for that type of investment. Now, if you wanted to make other investments more of a community nature, again, you could design an instrument specifically for that purpose that would enable a tax benefit to be accrued, perhaps by delivering something that would fit with the big society movement, with an investment made to improve things in your community. But that would require careful design and careful explanation of risks so that it wasn't oversold or missold and all those things that people worry about.

Chair: I think we need to move on to our last two questions.

Q104   Simon Wright: How does the Green Investment Bank strike the balance between maximising a commercial return on the investment, against perhaps less commercial but strongly green outcomes? In effect, how green should the GIB aim to be?

James Cameron: Don't forget its mandate is going to be set by environmental objectives. This is why we need to spend a bit more time talking about the mandate and a bit less time talking about conflicts between Treasury and other Departments. The mandate will have built into it the Government's carbon reduction commitments, the budgetary requirements that the nation now has to report on its carbon, a whole series of Government commitments to deliver renewable energy and energy efficiencies. The institution itself is going to be locked on to those targets. That's what it's there for, so no one should ever doubt its purposes. The commercial returns are largely going to come to those who provided the capital which, on occasion, there will be some public finance in, as we have explained. It may well be a tranche of investment in a project that then gets released to syndication maybe after the wind farms are built and then recycled. So there will be a return that comes from that but it will come from a commercial marketplace that is already engaged.

  Because this is a public institution in the public interest, you should see the commercial returns as largely falling to others and the financial returns being recycled in the delivery of the mission of the organisation. So it has to act alongside commercial actors confidently, knowing their language, knowing their interests, but fixed on its mandate which delivers environmental benefit, its long-term objectives and recycling the investment into improving the capital flow to deliver the policy. It is not a commercial bank in that sense at all, or anything like one.

Q105   Chair: I think we have just about reached the end of our time. The final question was, in just one sentence, do you have any advice to Government on how they should test the effectiveness of what it is going to set up?

James Cameron: Just get started with some transactions and find things that need to be done now, and display what can be done. I think you'll find a lot of the anxiety and worry in certain parts of Government, or the fear that is going to increase exposure to risk for the Government, will go away when we start to do things.

Chair: On that note, I am sure there are a lot of people around this table who have some really fine examples. Thank you very much indeed for your time; it has been helpful.

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2011
Prepared 11 March 2011